Q2 2021 Tegna Inc Earnings Call

August 9, 2021

[music].

But they unlock them to a second quarter 'twenty to 'twenty, 1 talking about earnings conference calls this call is being recorded Arthur.

Speakers for today will be Dave Lougee, President and Chief Executive Officer.

Victoria Harker, Chief Financial Officer at this time I would like to turn the call over to Tom Coughlin head of Investor Relations. Please go ahead.

Thank you and good morning, and welcome to our second quarter 2021 earnings call and webcast today, our president and CEO, Dave Lougee, and our CFO, Victoria Harker Harker will review the financial performance and results after that we'll open the call for questions.

Hopefully you've had an opportunity to review this morning's press release released if you have any if you have not yet seen a copy of the release, it's available at <unk> Dot com before we get started I'd like to remind you that this conference call and webcast include forward looking statements and our actual results may differ factors that may cause them to differ are outlined in our SEC filings.

This presentation also includes certain non-GAAP financial measures, we have provided reconciliations of those measures to the most directly comparable GAAP measure in the press release with that let me turn the call over to Dave. Thank you, Doug and good morning, everyone.

<unk> second quarter was another record reflecting execution of our long term strategy relentless focus on operational performance and expense management and an improvement in underlying economic trends since the height of the pandemic.

We achieved a number of second quarter Records total revenue subscription revenue advertising and marketing services revenue net income and adjusted EBITDA.

Looking forward, we see continued growth across the key drivers of our business, which is reflected in our positive outlook for the third quarter and full year, which now includes an even stronger free cash flow guidance.

To provide an overview of some of our key second quarter results total company revenues were up 27% year over year.

We had another quarter of record revenue supported by continued strong subscription revenue and growth in Ams revenue.

To provide some further color subscription revenue grew 16% year over year in the second quarter. The same growth rate, we saw in the first quarter of 2021.

When compared to the second quarter of 2019 subscription revenues were 59% higher.

Our predictable subscription revenue streams continue to be a key driver of our underlying growth and durability of our business model through T. Keep 2 key frac factors, 1 improving underlying subscriber trends are year over year subscriber trends continued to strengthen in the quarter now more than a full percentage point better than 5 months earlier.

And 2 strong step ups in retransmission rates last year, we repriced approximately 35% of our subscribers and will reprice, an additional 30% approximately 30% toward the end of this year.

Combined these factors support our full year guidance for subscription revenue to be up mid to high teens percent for the year and for net subscription profits to grow in the mid to high 20%.

Another key driver of our performance this quarter with strong advertising and marketing services revenue.

S revenue continues to accelerate and was up 49% over last year for the second quarter and continues to accelerate on a 2 year basis advertising revenue was basically flat down less than 1% on a pro forma basis compared to the second quarter of 2019, a result of the magnitude of the rebound in the Ed in the AD market since the <unk>.

The impact of Covid and strong performance by our sales and marketing teams Victor.

Victoria will cover advertising categories in more detail in a few minutes, but I did want to highlight that if you exclude automotive advertising, which as you. All know is challenged temporarily due to supply chain issues or Ams revenue would've been up in the mid single digits over 2019 on a pro forma basis and based on the continued acceleration we're seeing.

Today, we expect for the third quarter to show further significant improvement even when excluding excluding for the positive impact of the Olympics.

Turning now to premium on our first to market and industry, leading OTT advertising platform, which had a record quarter for a non political year.

Premium continues to execute on our strategy and affirm <unk> distinct advantage in selling OTT advertising services across our footprint and beyond combined with great TV and premium direct sales force coverage. Our local sales force now extends to almost 75% of households across the U S broadening our reach.

Beyond television and accessing new markets.

In June premium announced an expanded partnership with Polk automotive solutions to leverage market, leading insights to bolster audience targeting and sales lift measurements to deliver an end to end OTT AD solution for automotive advertisers. This is a great example of premiums role in supporting the growing and evolving needs of local and regional advertisers by driving more.

<unk> business outcomes. Another key component of techno strong underlying Ams growth, we continue to see and expect robust growth in premium with revenue is on track to finish the year, 45% to 50% higher than last year.

Now turning to capital allocation and expense management during.

During the second quarter, we paid our first elevated dividends since the 36% annual increase we announced earlier this year shortly following our 3 year $300 million share repurchase announcement.

These actions reflect our boards and managements confidence in <unk> performance and long term growth, which are supported by our significant free cash flows. Our board is actively evaluating all additional capital allocate options allocation options in anticipation of reaching our net leverage target of low threes by the end of the year with a goal of staying below 4 <unk>.

<unk> net leverage.

The continued strength of our business also gives us greater confidence in our future free cash flows. This is reflected in our new 'twenty 'twenty 2021 free cash flow as a percentage of revenue guide of 21, 5% to 22.0%, which we expect to achieve the high end up.

We continue to have clear visibility into the durable subscription and political revenues that drive these cash flows and create value for our business and as always we remain diligent in our expense management efforts staying focused on generating incremental savings through a coordinated disciplined cost management and many efficiency initiatives.

Now to update you on several strategic initiatives underway at <unk>.

This spring based on the growth and success of verified content across our stations, we launched verified as a national Standalone brand to combat the sea of misinformation and disinformation audiences are bombarded with on a daily basis, especially on social media.

<unk> helps consumers by identifying which stories or claims are true and which ones are false and provides trustworthy transparent research fact gathering always showing sources upfront.

Verify now has a dedicated presence of called across all major social media channels, including Snapchat, Facebook and Tic toc, making even easier for consumers to verify the news and information they are consuming a sharing and for us to be able to reach all generations of viewers and consumers year to date verify content on our local station sites and are very.

<unk>. This dot com website delivered approximately $30 million total visitors and 7 million total video place and we're just getting started.

Locked on the leading sports podcast network. We acquired earlier. This year also continues to innovate now expanding into video locked on is now distributed on Youtube and across our stations OTT apps.

'twenty locked on shows are now available on Youtube, including locked on NFL locked on NBA locked on big 10, and locked on fantasy basketball as well as podcast for the major NFL and NBA franchises since inception of the network's first Youtube channel channel earlier. This year locked on has generated more than 160000 total hours.

Of watching time and more than 1 million video views, which average more than 10 minutes per play in each in June which is a long time in the digital world for the NBA draft locked on partnering with our Dallas station WFAN to co produced a draft special featuring more than 30, local Anna's analyst with in depth experience.

True differentiator for our company. We're also very proud to launch the first ever daily sports podcast still dedicated to historically black colleges and universities.

We remain committed as a company to making progress on diversity equity and inclusion and further embedding these principles and our culture.

At the beginning of this year, we said quantifiable 5 year goals to increase black indigenous and people of color representation across our content teams news leadership and management positions. Since then through intentional actions, we are progressing progressing at or above the rate of change required to achieve these goals. This includes improvements in the number.

Diverse department had positions that are key to hiring and decision making.

Our inclusive journalism program, which we developed last year with a point of Institute aims to tackle unconscious bias in news reporting and content development across all our platforms. All stations news digital and marketing personnel have begun taking part in the program with 54 stations completing the first phase of the program that includes <unk>.

Bias and inclusive reporting trading leadership leadership specific training and content audits to ensure we're making progress and hold ourselves accountable.

Finally, we're proud to share the Technion recently received 2 honors that reflect our longstanding commitment to our employees and communities.

Last week, we were recognized as 1 of the 1 of Achievers 50, most engaged workplaces in the United States. This achievement reflects our culture of employee employee engagement across the company. Our people are at the heart of everything we do and our deliberate approach to understanding our call. These perspectives and acting on what we've heard.

Our key to our innovative and purpose driven culture taken was also an honoree of the civic 50 for the second consecutive year and recognition and recognition of our role as a community minded socially responsible company that drives social impact we are very proud of the determination and resilience of our very engaged.

<unk> that enables us to infill our fulfill our mission every day and with that I'll now turn the call over to Victoria. Thanks, Dave Good morning, everyone and thanks for joining us.

As Dave already discussed our second quarter financial highlights.

Reflect historic high watermarks for many of our important drivers, including total revenue subscription revenue and that revenue net income and adjusted EBITDA.

This performance not only reflects the strength and resilience of taking this business model, but our continued execution on all 5 pillars of our strategic plan.

Our disciplined M&A strategy and operational excellence is reflected in the strong financial performance of our portfolio of stations each performing extremely well.

This not only positions us to capitalize on demand trends that fuels our ongoing growth.

Apply the same disciplined and thoughtful approach to other aspects of our capital allocation as well ranging from our recent dividend increase to our ongoing organic investments in both traditional broadcast as well as OTT, all while reducing leverage increasing our free cash flow guidance.

I'll touch on more of our future plans in just a few minutes.

First let's take a look at the drivers of our second quarter financial performance.

Turning to the second quarter consolidated financial results.

As a reminder, my comments today are primarily focused on <unk> performance on a consolidated non-GAAP basis to provide you with visibility into the financial drivers of our business trends as well as our operational results.

You can find all of our reported data and prior period Comparatives in our press release.

For the second quarter total company revenue was up 27% year over year well in line with our previously announced guidance range driven by record second quarter subscription and Ams revenue.

Total revenues were up 37% compared to the second quarter of 2019, driven by the contributions of our newly acquired stations as well as ongoing subscription revenue growth.

To provide you with additional color on our strong revenue performance during the quarter here details by category.

Second quarter subscription revenue increased 16% year over year Ed.

Dave referenced in his remarks this growth was in part fueled by improving subscriber trends now more than a full percentage point better than 5 months ago.

As a reminder, our multiyear network affiliation agreements, which encompass approximately 94% of our big 4 subscribers have renewals that occur at the end of 2022, providing a clear line of sight into the financial trajectory of these revenue streams.

As a result, <unk> high margin subscription revenues, coupled with our political revenues produce annuity like EBITDA and free cash flows and continued to comprise more than 50% of our total revenues on a 2 year basis.

Record Ams revenue finished the quarter up 49% compared to second quarter of last year and was just slightly below 2019 about less than 1%.

On a pro forma basis, despite the challenges in the auto industry, but it continues to face with semiconductor supply chain issues.

When excluding these auto AD impacts Ams revenue would've been up mid single digits year over year.

To provide you with some additional color on how the key advertising categories performed this quarter.

Ams continues to show improvement across many categories supported by strong audience metrics on both traditional TV and digital platforms.

Not surprisingly all categories were up over last year, including auto services retail health care home improvement Entertainment gambling insurance banking and finance packaged goods and education.

Even categories that continue to face some pressure this quarter, including entertainment travel and tourism were up substantially compared to the second quarter last year as you'd expect given the emergence from pandemic Lockdowns this year.

The underlying advertising industry continues to rebound with Ams third quarter also pacing significantly over last year and all categories again up year over year.

When compared to the third quarter of 2019, a M. S is up on a pro forma basis as well even before the positive impact of the Olympics in July and August.

As you heard in Dave's remarks, we expect these positive trends to continue supporting strong and accelerating Ams revenue into the third quarter.

Turning now to expenses for the second quarter.

As a reminder, our year over year expense comparisons are less favorable this quarter given the significant impact our expense reduction effort.

Put in place in the height of locked down last year in the second quarter.

Our non-GAAP operating expenses were $537 million up 10% compared to the second quarter last year, driven by higher programming fees and premium growth related expenses.

Excluding programming costs and premium non-GAAP operating expenses for the quarter were up 5% as you would expect when compared to last year, given COVID-19 related expense reductions last year.

On a pro forma basis operating expenses without the impact of programming and premium and expenses were down 3% below 2019 levels, reflecting the ongoing impact of our expense reduction efforts.

As a reminder, during the second quarter last year, we immediately reduced all nonessential spending and discretionary capital expenditures to preserve the long term health of our business during the height of the pandemic.

Beyond this the ongoing cost savings initiatives that we had previously internet implemented continue to create efficiencies.

We shared with you previously we already have realized $50 million of our targeted annualized cost take outs in both 2020 and 2021 a year ahead of schedule.

[noise] through our streamlining and cost reduction efforts, we achieved record adjusted EBITDA and full year 2020, and in the first and second quarters of 2021.

Our second quarter, adjusted EBITDA of $228 million was up 83% year over year, and 35% compared to second quarter of 2019.

This growth was driven by the recovery in Ams revenues and growth in that subscription profits.

Adjusted EBITDA margin was 31% this quarter fully 32% when excluding the impact of premium.

As you heard in David's remarks, we're continuing to invest in premiums market share growth, including recent partnerships given the strong revenue trajectory, there and not managing it to maximize EBITDA at this time.

[laughter].

Now, let's turn to our balance sheet and liquidity, both of which continue to benefit from our disciplined management and proactive cap allocation as you know taken it leverages a number of tools to create value for our shareholders and has a track record of execution.

Through organic and inorganic investments dividends and share repurchases, all while reducing debt.

We're on target to meet our leverage guidance of low 3 times by the end of the year.

As a result, we now have only $137 million of our long term notes due during the next 5 years.

These are the stub of 'twenty 'twenty 4 bonds callable at par in 2022 with an early redemption date this fall.

As you know we also have capacity under our revolving credit facility, which provides us with additional flexibility as of June 30th there was $1.2 billion of unused borrowing capacity under our revolver.

We ended the quarter with total debt of $3.48 billion, producing net leverage of 364 times more than a full turn below our net leverage this time last year.

As a reminder, our only financial covenant relates to our $1.5 billion revolver.

And we obviously have plenty of headroom under its 5.5 times leverage cap.

As a result of our strong financial results, including reduced leverage.

S&P raised our a double b minus credit rating in June to double B revising their outlook to stable.

[noise] throughout the year and the quarter, we've continued to generate strong free cash flow driven primarily by our high margin durable subscription and political revenues and the thoughtful management of our balance sheet.

As we previewed for you last quarter higher than usual tax payments came due this quarter driven by strong fourth quarter 2020 results, particularly record rep put particularly record political advertising.

As a reminder, when comparing cash flow generation between the second quarter of 'twenty, 'twenty, 1 and 'twenty 'twenty.

Last year benefited significantly by the IRS pandemic related deferral of all federal income tax payments until June of this year.

As a result of both of these factors income tax payments in the second quarter were $118 million higher year over year. Despite this we generated free cash flow of $92 million in the second quarter and have increased our forecasted free cash flow as a percentage of revenue.

Outlook by raising the low end of the 'twenty 'twenty to 2021 guidance range from 20, 21% to 21.5%.

To a new range of 21, 5% to 22.

As Dave mentioned, we expect to close the year at the high end of this range, notably this is the second time, we've increased this 2 year free cash flow guide this year driven by our strong results.

During the most recent period of uncertainty and macroeconomic recovery taking to remain focused on critical platform investments debt reduction and expense management.

As our leverage has improved and visibility into the normalized post pandemic environment builds we increased our capital return to shareholders with a 36% annualized increase to our dividend.

This increased payout is a strong reflection of our confidence in the business manifested in sustained and significant fast cash flow generation.

Beyond this we recently reinstated our 3 year $300 million share repurchase program, which we continue to balance with organic investments and opportunistic M&A.

All options that we are actively reviewing in anticipation of achieving our net leverage guidance of low 3 times by the end of this year.

And with the ongoing goal of keeping our net leverage below 4 times in the normal course of business.

Before I turn to our outlook for the third quarter and full year I want to remind you of the lens through which we evaluate M&A as part of our broader capital allocation framework.

As discussed in the past, we're always actively reviewing opportunities, which complement our portfolio enhance our financial trajectory and strategic vision for the business.

[noise].

<unk>, we also have a strong track record of executing on transactions. After they close this can be seen in the strongly performing stations that we most recently acquired in 2019 and the synergies we released.

Realized on or even ahead of schedule producing nearly immediate free cash flow accretion followed by EPS accretion and approximately 9 months.

We're also looking at innovative ways to build on our acquired assets to further our audience reach and expand services for our customers across OTT platforms.

We will continue to assess opportunities to grow through both organic and inorganic investments and to enhance acquisitions through innovation and strong execution as we've always done.

[noise] as you saw in our second quarter release, we provided guidance on key financial metrics for the third quarter of 2021 and are strengthening our free cash flow guidance and reaffirming all other key financial metrics. We previously provided.

We also reaffirmed our expectation for full year premium revenues to be up between 45 and 50% above 2020.

To help model other near term expectations, let's walk through a few third quarter financial guidance metrics.

For the third quarter, we expect total company revenue to be up low single digits driven by growth in both EMS and subscription revenues offset by significant political revenue in the third quarter of last year.

Excluding political revenue, we expect total company revenue to be up high teens for the third quarter.

We forecast operating expense in the third quarter to increase in the mid to high single digits compared to third quarter 2020, driven by increased programming expenses associated with higher subscription revenue.

Excluding programming costs.

We project third quarter operating expenses to be up in the mid single digits. The majority of which is driven by premium.

For full year 2021, except.

Subscription revenue to be up mid to high teens based on M. D. P. D renewals completed at the end of 2020 as well as strong subscriber trends.

As a reminder, we repriced approximately 35% of subscribers in the fourth quarter of 2020 and will also be renewing approximately 30% of subscribers by year end.

For full year, 2021, EBITDA and free cash flow will also continue to benefit from significant cost reduction initiatives that have been underway for the past 24 months with more to come in the quarters ahead as we continue to expand on our efficiencies.

Turning now to our key full year 2021 guidance elements corporate expense is expected to be in the range of $44 million to $48 million.

Depreciation is projected to be in the range of $62 million to $66 million.

Amortization is projected to be in the range of $60 million to $65 million.

Interest expense reduced due to the benefit of our debt reduction is now expected to be in the range of $187 million to $192 million.

We expect capital expenditures to be in the range of $64 million to $69 million, which includes nonrecurring capital expenditures of approximately $20 million to $22 million.

[noise] comprised mostly of U H F C H F transitions as well as the continuation of our centralized streaming facility.

We continue to forecast an effective tax rate in the range of 24% to 25%.

We expect to end 2021 with net leverage of in the low 3 times accident and he uses of capital with greater financial returns and deleveraging.

Finally, as I mentioned previously we raised the low end of our guidance range for 'twenty 'twenty to 2021 free cash flow was a furnace outage of revenue now expecting to achieve the high end of our new range of 21.5% to 22%.

And with that we'll now turn to Q&A to take your questions.

Thank you and if you'd like to queue for a question by pressing star 1 on your telephone keypad again, Matt.

1 day into the queue for questions.

We will now take our first question from John Kernan Benchmark Company. Please go ahead.

Yeah.

Hey, guys can you hear me.

Yes, Hi, Dan we can.

Hey, sorry, I was on mute there for a second good morning. Good report.

Dave obviously positive traction in core with the tailwind from the Olympics, obviously been a lot of Ed headlines around Matt maybe you can just.

Size up how you're thinking about kind of the the balance between linear.

And Youre renegotiations with with Peacock around screening if there was any tailwind.

Matt and then you did mention also that sub count was a little bit better.

In the quarter, just maybe some updated thoughts on how you expect that to trend over the balance of the year.

Sure Dan I'm not sure I am not sure until we understood. Your question on linear and Pete Scott could you rephrase that for me.

Yeah. So if we just think about linear ratings were down.

But we also had.

Increased screening was pretty notable noticeable with Roku you, obviously just redid your deal with NBC do include the fact that they were going to do a lot of stuff on smoothed some stuff the streaming to just how we think about if there was any flow through benefit from the streaming side.

Olympics and to size up that whole opportunity and how we're thinking about going into a winter next year.

Yeah, well, let me so let me start with core advertising overall.

If you're actually worried about core trends. They are very positive. They are very as I mentioned in the in my comments. There's we've we've had for the last 4 weeks, we've written more money on the books than we have in a few years. That's how strong things are right now so is there an indicating.

The strength in the second quarter was good was really healthy, but third quarter is showing a very strong economy and a very strong performance for our company again I'm not totally sure I understand your question on Peacock day relative to the Olympics, but.

And the impact of streaming but it's.

So I'm Gonna get look lets you give me 1 more try at that but also you asked me about sub trends. So let me do that first of all you think about ready frame and a question on peacock, but so sub trends. We're very pleased with as we'd indicated I think last time, we talked to you we were in the low fives relative to year over year trends.

And we are now in the very low fours and that's through April and frankly, we've got remittances on May 2 we haven't released that number yet, but it would indicate that we might be below 4 even in may so where we're seeing really quite dramatic we would call it improvements in year over year trends in our subs.

And again that 5 month point, we made that demarcation intentionally because you know where we are more than a point better than we were just 5 months early and give me 1 more try on that Peacock question Olympic question, Dan and it was a little trouble understanding your mic 2 alright, Okay. I'll take 1 last shot at it gave otherwise we'll take it offline maybe if you could just tell us how youre thinking.

About the impact of the Olympics on Q3, let's just start with that and then given that there were linear challenges, but some streaming uplift if that was contemplated in your last deal. So just how do we think about kind of the balance between those 2 if it really matters, where the viewing is happening how about that.

I completely understand that question look for this Olympics screaming Peacock was de Minimis as in terms of how much of the Olympics were carried on streaming right and the events.

Didn't look you know really the distribution of programming between broadcast and cable was up pretty much the similar as previous Olympics, but Peacock I would say was de minimis what that looks like.

Next February 2 years 4 years will be an ongoing conversation, but yes. It was considered relative to our affiliation.

Affiliation agreement when we did that at the end of last year. The Olympics themselves. So the thing about our third quarter is the Olympics are not a great performer as theyre not for everybody, including I think the network because pretty obvious reasons Tokyo was a big question about weather was even going to be the.

I was going to happen there were political controversies around it and it was going to be no fan so advertisers, but I think pretty much rightly figured out that there would be a lot less interest in the olympics than normal and that was true so our Olympic revenues down from 16.

But the thing I'd say is that's not a big event for us as I've said in previous calls if you go back to the old Gannett days prior to us buying below and more than 60% of our households, where all N V C and frankly, it was a bigger event for national advertisers a much bigger percentage of our revenue, but now that you know we were you know.

Love, 40% or less NBC homes that you know that it's just a much smaller piece of our total pie or you know are incremental Olympic dollars is probably a little more than 30% of our total billing dollars.

So you know for <unk>, but for the company understand while it's positive for our NBC stations. It's negative during those same time periods for ABC CBS and Fox stations. So it's just not that big a deal for US we love having it from our programming and promotion standpoint, but I don't you know on an annualized basis. The average you know the Olympics will be well.

Yes and of course, you know the incremental value of the Olympics will be way well less than a total percentage of our total revenue.

What percentage point under a full percentage point of our total revenue.

Perfect. Thank you Dave I appreciate it.

Yeah.

We'll take our next question from Craig Huber of Huber Research partners. Please go ahead.

Yes, hi.

Dave.

All the markets you guys are going with your TV stations.

National play with premium curious to hear your thoughts just big picture here for a second on the economy in the U S have you seen any.

Major changes there for the worse in particular curious your thoughts there or any regional changes with this delta variant that's impacting your advertising.

First question no. Yeah first question is no not at all it's a it's a booming advertising economy protecting right now and across the REIT and you know even even in the parts of the country that might have more locked down kind of quality stores.

Tighter policies like the northwest part of the country and stuff, it's not but you know.

The irony is where the variance is having where there's the most hospitalizations are the same places that you know the local governments have kept things. The most open until you know what it's like let's pick a state, Texas, Florida, Georgia, So where we have a big presence in so those states those economies are doing very well despite despite the trends of the varian.

Then there are in those states.

The premium on is it fair to say you guys are up about 50% of the revenues there in the second quarter year over year, given your guidance Youre still 45% to 50% maybe just now David.

Yeah, it's not fair to say I'm, sorry, Gary it's not fair to say that obviously second quarter last year was a very low comp right. So I'm not we're not given a number on the second quarter, but it's not you wouldn't assume that we're only up 50% in the second quarter.

Okay and then the other part of the question is.

Update us on whats exciting to you. The most right now about premium what's sort of changed in the last 3 to 6 months for the better for the operation.

Well you know I think this thing I think the I think the local growth right that the original premise of the business was all about you know in a sea of national players in the video space that we would have a very local advantage.

We had this pleasant surprise when we came out of the gate that was very attractive to national advertisers, which it still is but I'd say the biggest thing in the last 6 months has been the real acceleration of our revenue from local advertisers, which is the real future of the business, which is a combination of you know.

<unk> improving performance from our sales forces, our local sales forces as well as the local advertiser themselves, becoming more and more open minded and your understanding the product better and better.

And can you give us a rough percentage of local versus national and premium right. Now that's the last question. It's it's going it's it's it's going over national.

Going over national.

Very good thank you Ed and that trend will continue.

Thanks, Craig.

That's all I had thanks.

Our next question from Stephen call.

Fargo. Please go ahead.

Thanks, maybe first question on the free cash flow guidance, maybe you could just frame for us what's developing.

More positively as you as you go through the year is it the AB recovery being stronger or is it the sub declines being better is it cost reductions or cash taxes or a bit of all of the above maybe just some color on the guidance first.

Sure, Steve I would simply say a little bit of all of that but the main driver is advertising right simply put both the marketplace and our performance is better than we projected and Ed.

And getting better by the month.

And just to be clear cash taxes.

Not any different than we expect for the second half of it was the second quarter was actually higher compared to last year.

Got it.

On that.

Great and then maybe just a follow up on premiere on I think you've come through the upfront can you talk about what percentage of revenue you're looking to do with Permian on a committed basis and I think that programmatic or scatter pricing is still really high but you want to have a kind of a blend of those 2 things. So how does that kind of a whole process of.

Commitments blending and if you can make any commentary on the EBITDA margin on Permian loved that too.

Yeah actually what I want to make sure I understand the first question right. When you say commodity somebody inventory guarantees Steven.

Yeah, just just bringing in revenue and having a committed ahead of time versus selling it on a more programmatic basis. It seems like you're moving to selling more through some form of a book their committed process. So just wondering how youre thinking about kind of maturing the platform to do more of that.

Yes, we don't I don't think we we don't want to think about premium programmatic per se right because I'd say, we're not you know we're not a remnant exchange right. So in most of our most of our businesses upfront advice right, they're bad buys we'd go out and get and they can be for summit.

Lugging broadcast some can be for shorter timeframes, but some can be a full year commitment are relative to that if that if that answered. Your question and your other question was on the margins and the answer is both the first quarter in the second quarter were in the double digits on margins in the second quarter was higher than the first quarter.

And trending upwards to agree a nice job managing both pricing as well as costs.

Great and then maybe just lastly, the commentary on capital allocation was was helpful.

I think with your free cash flow guidance and some of our callable debt. It implies maybe $200 million, that's kind of unallocated for the balance of the year I think this FCC, so far hasn't necessarily shown itself to be super friendly to interpreting rules. So just how are you thinking about the administration and the prospects of M&A versus.

Repurchasing shares thank you.

Well just simply as it relates to agree with you relative in the very near term around the FCC, Steven notably that's still yet.

It's August and we haven't even got a new chair of the Democratic FCC named yet So you got.

Whatever uncertainty was there it was just only add to the fact, we don't know he'll be running the commission. So in the very near term, but I think that's right relative to broadcast M&A, but certainly we've got we've got a lot of different options on the table. We're always looking at adjacent businesses, but as Victoria said, we're obviously, we've increased our dividend we've reauthorized our share buyback and so we're.

We'll be the board and management are actively looking and assessing options right now and Steven just to clarify on the plant and then obviously, we're not going to put out a number out there in terms of available cash but in terms of the callable debt.

And this fall with the $137 million, we may or may not decide to pay it down we could brief just refinance it just take it out and cover it with the revolver. So we're still making that determination and we will based on what the best use of cashes.

Great. Thank you.

Thanks, Dave.

We will take our next question from Jim Goss of Barrington Research. Please go ahead.

Thank you.

Regarding a couple of your new initiatives and verify this and a lot that podcast network I Wonder if you might frame up the potential need space in there.

Specifically with verify this that kind of is there a way to inc.

Corporate it into the.

And to your broadcast operations are in a way that might be positive and maybe reinforce its existence and what is the monetization.

Scheme or verify this and then with the lockdown.

Yeah.

I was wondering about expanding the distribution.

Outlets.

The existing ones it looks like it's very early stage I think February 20 shows now available on Youtube.

And a couple of other things were going well beyond that.

Yeah, Let me take the second 1 first.

Jim.

Relative to locked on first of all as it relates to monetization. We're in the very early stages, it's already a profitable business, but we didn't buy it just for that for our business. It is the first step of a digital sports strategy for us in the local space, where there we see a tremendous amount of white space.

In having hyper local digital operations around content protect potentially sports gambling content sports gambling data.

And across multiple platforms and this gives us.

A instant major foot in the door on that whole space. So that's why we're expanding into video and why we'll be doing you'll see us probably be doing a lot more things in a very cost effective way and the local sports space. So the monetization opportunity around locked on which even though it's currently profitable is much bigger than locked on itself for us in terms of where we look at it long.

Term and in terms of expanding distribution, yes, we just did which I think he made on video where we're we're in markets all over the country, including markets were not in I mean, we're taking is not in with locked on you know we've got New York Jets shows in San Francisco 40, Niners shows in markets, we're not in but on the video side, yes will be rapidly expands.

<unk>, probably almost in every market, where we've got a locked on presence and where I think we'll you'll see us expanding our locked on college presence as well as far as verified. This verify is actually also already on broadcast it started as a broadcast initiative. So all of our TV stations do verify content today, but now we've got this national team based.

Here in D C of some very talented journalist and.

That are doing national stories for the local operations and are also supporting the local operations on taking on local stories. The monetization of that is in the early stage. Jim I would say look we are just focused on making it big at the moment, where just as Ed. This is and it's not a massive investment from an expense stand.

Point, we're just focused on making at large and then we will turn to the monetization. Obviously, we can sell advertising and sponsorships, but we think it's going to be something potentially very attractive to a particular type of advertiser. So we're still looking at the best monetization, but.

We have we're not going to size it right now other than to say, it's all upside for us.

Okay.

1 other thing on premium Alex and I was.

That's down a couple of times already but.

You have 75% coverage.

I wonder if the plans for the other 25% of pets somehow.

Somehow organically or through additional partnerships and what is what is more important to you right now.

Probably both.

And covering the other 25% are getting more.

Partnerships like the Coke partnership in specific categories.

Yeah I appreciate the question I don't think it's either or but I would point out you know we can we cover the whole country with our national sales force. So we can you know if an advertiser national advertiser, but lets say a political candidate.

Wants us to target Juneau, Alaska, we can do that right. So we can we can cover the whole country right now from a serving ads standpoint, it's where do you think your question is around local sales force coverage right and yes, we do look at that other 25%. We've had inbounds, we've had interest from other broadcast groups to like.

Our relationship with gray to cover that 25% and so it is part of a well.

Part of the things we're looking at all the time, but we're also looking at the other the other point you mentioned were always looking for.

Things to improve attribution for it for advertisers.

And frankly, we're always looking at too in terms of potential.

<unk> tuck in acquisitions adjacent things that we might do that are not terribly large necessarily that will help add the business Ed to the business as well. So we're very focused on the growth of the business and the team is are the management team is executing very very well.

Alright, great. Thanks, very much Dave.

We will take our next question from Doug Arthur with Huber Research. Please go ahead.

Yeah. Thanks, Dave just as a follow up to your comment on the FCC I mean from a practical standpoint with just 4 commissioners right now.

If you were to announce an acquisition.

Mechanically how does that impede or is it a non factor in terms of.

Getting something approved by the Doj.

Do you mean by the FCC.

Well I mean, the Doj ultimately is the ultimate arbiter, but what I mean.

To the extent that the FCC sort of deadlocked here.

Is that in.

Could you not go ahead with a significant deal until there's some clarity on the personnel there.

Yeah, I think it's a it's a good question Doug a 2.2 FCC create challenges for the approval of any deal by the FCC. So I would I would just leave it at that but really I would just say they are the ultimate arbiter not the Doj, even though the Doj stuck its nose in some types of deals in recent years.

I think most deals that we've done in the past the.

The Doj has not been enacted participant.

So is that is that a is that a reason why since the obviously a fairly favorable Supreme court ruling back in the spring.

There's not been a lot of deal activity here because there is no junior person full time at the FCC.

Yeah, I think that's 1 I think that's probably 1 significant factor, yes, I think there's just.

Because while overall for the long term health of the industry that that ruling was tremendous news right and basically.

Taking away the oversight of the Appeals court in Philadelphia, but it also left there's still some lack of clarity around the end market consolidation and how the FCC would apply because there are a lot of discretion inside the way that rule as written so I think you'll I think you know.

Combination of the 2 to FCC and that you know I think you know we're now we're now up against the next Quadrennial review I shouldn't say up against it as an opportunity and I think it will I think the.

The industry will try to need to use that to create some more clarity and some more advantage for us on some further rule deregulation that we need whether we'll get that out of Democrats Democratic FCC remains to be seen but long winded answer to your question. Yes, a 2.2 FCC is tough to have clarity on what would be approved.

And just as a final follow up are you or your Washington contacts, giving you any confidence that this FCC deadlock will get resolved in the next 3 to 6 months.

Yeah, I think everybody thinks that they have to you're right I think everybody thinks that.

You know, there's always a pool on who the next day FCC chair will be but yes.

I would expect you to hear an announcement relatively soon on who that FCC chair will be and then if it is 1 of the incumbents.

Then that's 1 set of circumstances and then if it's not 1 of the incumbents day, you know maybe 1 of those comments doesn't stay so.

There's a lot of different possibilities.

Okay, great. Thank you.

Yeah.

We will now take our next question from Alexia <unk> with Johnny of J P. Morgan. Please go ahead.

Oh Hi. Thank you this is David Karnofsky on for Alexia.

The odd year for political but you do have some governors races in the California recall.

Any commentary you can provide on how that's shaping up versus 2017 and do you expect any midterm spend there or is it just too early for that.

Do you mean versus 2019 Sue.

David.

I'm, just saying I'm I'm asking about the odd year versus 17, but I am asking is there yes.

Michael will definitely be ahead of 2017 and likely be ahead of 19, but you know the recall has not produced a ton of spending.

You know for the dynamics of that race I think probably the biggest I think the race that will produce the most spending for us will be the governor of Virginia, which is in November and you have a.

We've got 2 markets that cover that but it's about the Washington D C in the Norfolk market and yet.

Yep.

It's gonna be a massive battle for the soul of the party I think so if the Republicans can take back the Governor's race in Virginia that would be quite a momentum greater for them going into next year or so and the Republican running is a.

Self funded a former CEO of Carlisle, So he's got money and Terry Mcauliffe, Scott monies, but that'll be that'll probably be our biggest race.

When all of a sudden done by the end of the year, but no I wouldn't say again is that the dollars are.

You know nothing in the neighborhood of what our EBIT number of years will be of course.

Okay, and then you provided a lot of good detail on the advertising categories.

Vertical I'm not sure I heard mentioned, specifically with sports betting maybe gambling was mentioned, but I just wanted to see if you could provide any color on the category how incremental that sandy.

2019, and kind of where it might be Gary. Thanks.

Well I think it's so it's it's you know it started out the year.

Massive growth rates, but still pretty de minimis to our overall advertising spending, but it's growing by the day, we've got more money on the books in the third quarter for sports gambling and we booked in the first half of the year and it's only the middle of August. So it is growing very very fast I think.

You know it by the end of the year when it's all said and done it could very well be a top 10 category for the full year and going only going up from there.

Thank you.

Yeah.

And there are no further questions at this time I would now like Tom.

Paul back today for any additional or closing remarks.

Alright, I have no more remarks, operator, thank you for taking the time for joining us today and listening in to get any additional questions. Please reach out to them complement at 700.38736764. Thank you for your time and have a great Monday. Thank you everyone.

Thank you that concludes the call. Thank you for your participation you may now disconnect.

Yeah.

Okay.

[music].

Good day and welcome to the second quarter 'twenty to 'twenty, 1 talking about earnings conference calls this call is being recorded.

The guidance for today will be Dave Lougee, President and Chief Executive Officer Vik.

Victoria Harker, Chief Financial Officer at this time I would like to turn the call over to Bill Hoffmann head of Investor Relations. Please go ahead.

Thank you Ed Good morning, and welcome to our second quarter 2021 earnings call and webcast today, our president and CEO, Dave Lougee, and our CFO, Victoria Harker Parker will review the financial performance and results. After that we'll open the call for questions hopefully you've had an opportunity to review this.

Earnings press release release, if you have any if you have not yet seen a copy of the release, it's available at <unk> Dot com before we get started I'd like to remind you that this conference call and webcast include forward looking statements and our actual results may differ factors that may cause them to differ are outlined in our SEC filings. This presentation also include.

Certain non-GAAP financial measures, we have provided reconciliations of those measures to the most directly comparable GAAP measure in the press release with that let me turn the call over to Dave. Thank you, Doug and good morning, everyone.

Taking the second quarter was another record reflecting execution of our long term strategy relentless focus on operational performance and expense management and an improvement in underlying economic trends since the height of the pandemic.

We achieved a number of second quarter Records total revenue subscription revenue advertising and marketing services revenue net income and adjusted EBITDA.

To provide an overview of some of our key second quarter results total company revenues were up 27% year over year.

Yet another quarter of record revenue supported by continued strong subscription revenue and growth in Ams revenue.

To provide some further color subscription revenue grew 16% year over year in the second quarter. The same growth rate, we saw in the first quarter of 2021.

And when compared to the second quarter of 2019 subscription revenues were 59% higher.

Our predictable subscription revenue streams continue to be a key driver of our underlying growth and durability of our business model through T. Keep 2 key fracked factors, 1 improving underlying subscriber trends.

Our year over year subscriber trends continued to strengthen in the quarter now more than a full percentage point better than 5 months earlier and 2 strong step ups in retransmission rates last year, we repriced approximately 35% of our subscribers and will reprice, an additional 30% approximately 30% towards the end of this year.

These factors support our full year guidance for subscription revenue to be up mid to high teens percent for the year and for next subscription profits to grow in the mid to high twenties percentage.

Another key driver of our performance this quarter was strong advertising and marketing services revenue and.

In Ams revenue continues to accelerate and was up 49% over last year for the second quarter and continues to accelerate on a 2 year basis advertising revenue was basically flat down less than 1% on a pro forma basis compared to the second quarter of 2019, a result of the magnitude of the rebound in the Ed in the AD markets.

The height of the impact of Covid and strong performance by our sales and marketing teams.

Today, we expect for the third quarter to show further significant improvement even when excluding excluding for the positive impact of the Olympics.

Turning now to premium on our first to market and industry, leading OTT advertising platform, which had a record quarter for a nonpolitical year.

Premium continues to execute on its strategy and affirm <unk> distinct advantage in selling OTT advertising services across our footprint and beyond combined with great TV and premium direct sales force coverage, our local sales force now extends to almost 75% of households across the U S. Broadening.

Our reach beyond television and accessing new markets.

In June premium on announced an expanded partnership with Polk automotive solutions to leverage market, leading insights to bolster audience targeting and sales lift measurements to deliver an end to end OTT AD solution for automotive advertisers. This is a great example of premiums role in supporting the growing and evolving needs of local and regional advertisers by driving.

<unk> business outcomes, another key component of <unk> strong underlying Ams growth.

We continue to see and expect robust growth in premium with revenues on track to finish the year, 45% to 50% higher than last year.

Now turning to capital allocation and expense management.

During the second quarter, we paid our first elevated dividend since the 36% annual increase we announced earlier this year shortly following our 3 year $300 million share repurchase announcement.

These actions reflect our board's and management's confidence in Tennant's performance and long term growth, which are supported by our significant free cash flows. Our board is actively evaluating all additional capital allocate options allocation options in anticipation of reaching our net leverage target of low threes by the end of the year with a goal of staying below 4 <unk>.

<unk> net leverage.

The continued strength of our business also gives us greater confidence in our future free cash flows. This is reflected in our new 22000, 2021 free cash flow as a percentage of revenue guide of $21, 5% to 22.0%, which we expect to achieve the high end up with.

Now to update you on several strategic initiatives underway at <unk>.

Clarify helps consumers by identifying which storage or claims are true and which ones are false and provides trustworthy transparent research fact gathering always showing sources upfront fare.

Clarify now has a dedicated presence are called across all major social media channels, including Snapchat, Facebook and Tic Toc, making it even easier for consumers to verify the news and information they are consuming a sharing and for us to be able to reach all generations of viewers and consumers year to date verify content on our local station sites and are very.

<unk>. This dot com website delivered approximately $30 million total visitors and 7 million total video place and we're just getting started.

Locked up the leading sports podcast network. We acquired earlier. This year also continues to innovate now expanding into video locked on is now distributed on Youtube and across our stations OTT apps.

Of watching time and more than 1 million video views, which average more than 10 minutes per play in each in June which is a long time in the digital world for the NBA draft locked on partnering with our Dallas station WSI a to co produced a draft special featuring more than 30, local Anna's analyst with in depth experience.

<unk> differentiator for our company. We're also very proud to launch the first ever daily sports podcast still dedicated to historically black colleges and universities.

We remain committed as a company to making progress on diversity equity and inclusion and further embedding these principles and our culture.

At the beginning of this year, we set quantifiable 5 year goals to increase black indigenous and people of color representation across our content teams news leadership and management positions. Since then through intentional actions, we are progressing progressing at or above the rate of change required to achieve these goals. This includes improvements in the number of.

A diverse department head positions that are key to hiring and decision making.

Bias and inclusive reporting trading leadership leadership specific training and content audits to ensure we're making progress and hold ourselves accountable.

Finally, we're proud to share that <unk> recently received 2 honors they reflect our longstanding commitment to our employees and communities.

Last week, we were recognized as 1 of the 1 of Achievers 50, most engaged workplaces in the United States. This achievement reflects our culture of employment employee engagement across the company.

Our people are at the heart of everything we do and our deliberate approach to understanding our call. These perspectives and acting on what we've heard are key to our innovative and purpose driven culture taken was also an honoree of the civic 50 for the second consecutive year and recognition and recognition of our role as a community minded socially responsible.

Ansible company that drives social impact we are very proud of the determination and resilience of our very engaged employees that enables us to instill our fulfill our mission every day and with that I'll now turn the call over to Victoria. Thanks, Dave Good morning, everyone and thanks for joining us as day.

Dave already discussed our second quarter financial highlights.

Historic high watermarks for many of our important drivers, including total revenue.

<unk> revenue and that's revenue net income and adjusted EBITDA.

This performance not only reflects the strength and resilience I've taken this business model, but our continued execution on all 5 pillars of our strategic plan.

Our disciplined M&A strategy and operational excellence is reflected in the strong financial performance of our portfolio of stations each performing extremely well.

This not only positions us to capitalize on demand trends that fuels our ongoing growth.

We've applied the same disciplined and thoughtful approach to other aspects of our capital allocation as well ranging from our recent dividend increase to our ongoing organic investments in both traditional broadcast as well as OTT.

All while reducing leverage increasing our free cash flow guidance.

I'll touch on more of our future plans in just a few minutes, but first let's take a look at the drivers of our second quarter financial performance.

Turning to the second quarter consolidated financial results.

You can find all of our reported data and prior period Comparatives in our press release.

For the second quarter total company revenue was up 27% year over year well in line with our previously announced guidance range driven by record second quarter subscription and Ams revenue.

Total revenues were up 37% compared to the second quarter of 2019, driven by the contributions of our newly acquired stations as well as ongoing subscription revenue growth.

To provide you with additional color on our strong revenue performance during the quarter here details by category.

Second quarter subscription revenue increased 16% year over year as Dave referenced in his remarks. This growth was in part fueled by improving subscriber trends now more than a full percentage point better than 5 months ago.

As a reminder, our multi year network affiliation agreements, which encompasses approximately 94% of our big 4 subscribers have renewals that occur at the end of 2022, providing a clear line of sight into the financial trajectory of these revenue streams.

As a result, <unk> high margin subscription revenues, coupled with our political revenues produce annuity like EBITDA and free cash flows and continue to comprise more than 50% of our total revenues on a 2 year basis.

Record Ams revenue finished the quarter up 49% compared to second quarter of last year and was just slightly below 2019 about less than 1%.

On a pro forma basis, despite the challenges in the auto industry that it continues to face with semiconductor supply chain issues.

When excluding these auto AD impacts Ams revenue would've been up mid single digits year over year.

To provide you with some additional color on how the key advertising categories performed this quarter.

Ams continues to show improvement across many categories supported by strong audience metrics on both traditional TV and digital platforms.

Not surprisingly all categories were up over last year, including auto services retail healthcare home improvement entertainment and gambling insurance banking and finance packaged goods and education.

Even categories that continue to face some pressure this quarter, including entertainment travel and tourism were up substantially compared to the second quarter last year as you would expect given the emergence from pandemic Lockdowns this year.

The underlying advertising industry continues to rebound with Ams third quarter also pacing significantly over last year and all categories again up year over year.

When compared to the third quarter of 2019, a M. S is up on a pro forma basis as well even before the positive impact of the Olympics in July and August.

As you heard in Dave's remarks, we expect these positive trends to continue supporting strong and accelerating Ams revenue into the third quarter.

Turning now to expenses for the second quarter.

As a reminder, our year over year expense comparisons are less favorable this quarter given the significant impact our expense reduction effort put.

Put in place in the height of locked down last year in the second quarter.

Our non-GAAP operating expenses were $537 million up 10% compared to the second quarter last year, driven by higher programming fees and premium growth related expenses.

Excluding programming costs and premium non-GAAP operating expenses for the quarter were up 5% as you'd expect when compared to last year, given COVID-19 related expense rate reductions last year.

On a pro forma basis operating expenses without the impact of programming and premium and expenses were down 3% below 2019 levels, reflecting the ongoing impact of our expense reduction efforts.

As a reminder, during the second quarter of last year, we immediately reduced all nonessential spending and discretionary capital expenditures to preserve the long term health of our business during the height of the pandemic.

Beyond this the ongoing cost savings initiatives that we had previously internet influencers continue to create efficiencies.

As we shared with you previously we already have realized $50 million of our targeted annualized cost take outs in both 2020 and 2021 a year ahead of schedule.

[noise] through our streamlining and cost reduction efforts, we achieved record adjusted EBITDA in full year 2020, and in the first and second quarters of 2021.

Our second quarter, adjusted EBITDA of $228 million was up 83% year over year, and 35% compared to the second quarter of 2019.

This growth was driven by the recovery in Ams revenues and growth in that subscription profits.

Adjusted EBITDA margin was 31% this quarter fully 32% when excluding the impact from premium.

Now, let's turn to our balance sheet and liquidity, both of which continue to benefit from our disciplined management and proactive capital allocation as you know taking the leverages a number of tools to create value for our shareholders and has a track record of execution.